History of the Tea Party

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LOL!!!

Given that in 2010, 20% of the $3.6 trillion dollar federal budget went to Defense, 20% to Social Security, and 21% to Medicare, Medicaid, and the Children's Health Insurance Program, I just don't understand where these newfound "geniuses" think that they are gonna be able to cut Government spending.

Add all the above to the fact that the Tea Party also wants to balance the budget while extending the Bush Tax Cuts for all Americans . . . which would mean $4 Trillion LESS coming into the Treasury over the next 10 years . . . I just don't see how any of their "balance the budget" math can realistically add up.

Lot's of political rhetoric.
But no plan or substance.
A typical PIPE DREAM!

Michael, there are several credible deficit reduction plans. Paul Ryan has one that tackles all the points you raise. Sadly, the party in power (D's) has no such plan and has made matters much worse. We are on track to double the deficit in Obama's four years, and we have raised the spending level to 24% of GDP.

The key is to cut spending, not cut the deficit. Do the first and the second will follow. Try to do the second by raising taxes without cuts and the deficit will never close. Over the past decades tax revenues have hovered around 19% of GDP regardless of tax rates. We can never get to a reasonable debt level when taxes bring in around 19% and spending stays at 24%.

Cutting spending to get to the requisite level (19%) will be hard without growth of the economy. Right now we are on course to another Lost Decade. Raising taxes slows growth; cutting increases growth. The extension of the Bush tax cuts seems more likely now than before. It is unlikely to cost $4T or anything close to that since those sorts of estimates come from static scoring that ignore growth effects. The Reagan tax cuts more than doubled tax revenues due to growth.

Tax changes are not the high order bit, however. We have massively increased business regulations & choked capital formation with ZIRP. A growth package needs to tackle more than just changing tax rates.

Obama has two years to change his tune and become more growth oriented, like Clinton did, especially with his 1997 capital gains tax cut and agreement to flatline spending growth. That combo resulted in surpluses. I hope he finds his inner fiscal discipline.

Joe, the Hope Rally may continue on. My current view is after a near-term correction, we continue into May/June 2011.

But this mid-term means the hopey-changey thing of Obama is over. The tea-party-swayed mid-terms seem to be the end of stimulus and massive socialization of sectors of our economy (healthcare, financial services, autos). It also showed a loss of confidence in Obama that he will have a difficult (although not impossible) chance to reverse. Two years is a long time in politics.

Still, the R's have little ability to change things in the next two years, and if the R leadership acts obstructionist, they will go the way of the Whigs.

Their better approach is to pick at the mistakes of the last 10 years (yes, the tea party principles are not Bushism either), such as proposing fixes to Obamacare rather than repeal. There is a lot to fix. The early wins look like these three:

Joe, the tea party is an uprising not a party. it is essentially leaderless, with various opportunists trying to assume leadership (dick armey, glenn beck). The question is which R leadership will stand up? Lindsey Gramm or Paul Ryan? One toadies to the assumptions of the governing class; the other is trying to fundamentally get our fiscal house in order.

so look past the tea party and ask what is the right policy: more debt to cure a debt bubble, or some other path to restoring normalcy?

The baseline argument that the govt needs to keep spending or the bottom falls out of the economy is baseless. Put aside the emergency measures of 2008 and ask what should be done NOW. If we get into the position where the govt needs to continue to borrow & spend to keep the economy on life support, we are as lost as the Japanese. Instead the private sector needs to begin investing and growing.

Bernanke's QE2 is the current hope for change to the dismal investing climate. It mistakes effect for cause. He thinks making borrowing cheaper will cause investment to grow. Instead it makes the return on capital lower. Think of QE as pushing on a wet noodle: money is available to lend, but no one shows up to borrow.

Milton Friedman's co-author has succinctly explained that Bernanke is fighting the wrong war: he thinks the problem is liquidity, as it was in the '30s; but instead the problem is solvency. The banks are insolvent and don't need more liquidity, they need to get rid of the bad debt somehow. In the 1930s the debt-deflation cycle of 1931-32 rid the economy of excess debt and provided a foundation for recovery. Would that we can find a less painful path! I think the S&L crisis showed us how, but we failed to implement a reconstruction agency to take on the bad debt and work it off, freeing the banks to go back to normal lending

I know this may seem like a D vs R argument to you, but it isn't. Bush pursued equally fatuous policies of cheap credit, excessive govt spending, new entitlements, that are more historically linked to the D's not the R's. No fiscal conservative he.

Wisdom lies in the Depression of 1946 - the depression that never happened. Massive reduction in spending, but also in govt regulation. Rather than fall, the economy boomed. Would that we could have done that in 1936 rather than 1946.

Joe, US business is awash in capital. They can borrow cheaply; they are sitting on cash hoards; they have reduced expenses to the bone. They do not need more pump priming! The well is quite full, thank you very much. They need places to invest.

Right now they are investing overseas. The US looks like a lousy place to invest. Sad, that. One of the highest business taxes in the world, layers of regulations, uncertain tax environment, uncertain regulatory environment, complex health insurance situation that won't be sorted out for years.

The US govt is already withdrawing spending - the Stimulus is passed its peak and is decreasing each quarter. This is NOT why the recovery is so anemic. Consumer spending is about what it used to be. Even in the Great Depression consumer spending didn't decrease. It is business spending which has been in trouble. Business spending/investment has to be revived. To do that the investment climate has to be improved. More deficit, more stimulus, more regulations, higher taxes, more grand schemes - none of that will help business investment. Instead it sucks capital away from investment in the US.

Academics like Krugman and Bernanke think their models reflect reality. They don't. They talk of aggregate demand and quantitative easing without focusing on the real problem: the destruction of capital formation by reducing returns on investment. When interest rates are low, the return on capital is pulled downward.

Think of the value of all of GM's plants and facilities. The US and Canada put in $65B and in the upcoming IPO GM will be worth a lot less than that.

Add all the above to the fact that the Tea Party also wants to balance the budget while extending the Bush Tax Cuts for all Americans . . . which would mean $4 Trillion LESS coming into the Treasury over the next 10 years . . . I just don't see how any of their "balance the budget" math can realistically add up.

I heard they were going to confiscate all your profits from trading energy stocks and EXAS. That oughtta take care of the deficit.

LOL! And the deficit decreased during that same time. Ha. Give me a break. I'm sure you'll blame the D's that controlled Congress. I also recall Clinton raised taxes and then economy expanded and the deficit decreased! Oh yes that's due to R's takeover of Congress ;)

Simplistic but it shows that lower stated tax rates by themselves do not mean higher growth. (http://en.wikipedia.org/wiki/File:Income_Taxes_By_Country.svg - let's all move to Ireland! How are those country's bonds currently doing). Besides, no company, especially large ones, pay anything close to the stated rates (Google paid 8%). Lots of loopholes and breaks.

A lot more goes into a country's growth potential besides tax rates: Yes the type of regulation's important, but productivity and skills of workers, business management intelligence, access to capital, general culture, a country's political stability, potential of population's upward mobility, complexity of tax code, confidence in future outlook, a leveled playing field, etc. etc., etc.). Bottom line a lot of governmental and social factors as well.

Tax rates and regulations are important, but only a small part of what makes a country's economy tick.

cjmorris, I am not making a political statement re Reagan's tax cuts spurring growth, but a factual statement. Spending also increased, hence the budget never balanced, but spending as a % of GDP fell quite a bit. Clinton's tax increase did not stop growth but it was slower during his period than Reagan's. And yes, a lot of other factors also apply, including regulations. Bush's tax cuts had less of an impact (and could have ben designed much better). Bottom line is that a package of pro-growth policies is needed, not more government life support.

wave, that picture came from Protostar I, a satellite startup run by a friend of mine, who invited me to the launch. It is up there somewhere over Asia, beaming video down to 3 billion potential viewers. The satellite has already been bought by a bigger satellite consortium.

The actual bird had an interesting history: originally built by Loral for ChinaSat 8, it got hung up (restricted for export) in a kerfuffle in the later Clinton years, stayed mothballed in the Loral Factory in Palo Alto, and later got picked up for a discount by Protostar.

It will be interesting to find out who launched off the coast of California this morning. A tea party of ICBMs?